Stent v Body Corporate 324525
[2020] NZHC 3007
•13 November 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-1084
[2020] NZHC 3007
UNDER Section 119 of the Residential Tenancies Act 1986 BETWEEN
ROBYN KATHLEEN STENT
Appellant
AND
BODY CORPORATE 324525
Respondent
Hearing: 10 September 2020 Counsel:
B E Brill for Appellant
T J G Allan and K M Wakelin for Respondent
Judgment:
13 November 2020
JUDGMENT OF BREWER J
This judgment was delivered by me on 13 November 2020 at 11:00 am pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Solicitors:
B E Brill (Paihia) for Appellant
Grove Darlow & Partners (Auckland) for Respondent
STENT v BODY CORPORATE 324525 [2020] NZHC 3007 [13 November 2020]
Introduction
[1] Ms Stent owns Unit 204 in the Bridgewater Apartments, Paihia. There was litigation with the Far North District Council (“the Council”) because Bridgewater Apartments was a leaky complex. The litigation was settled.
[2] As part of the settlement the Body Corporate received money from the Council in respect of the Body Corporate’s claim for defects in the Common Property.
[3] The Body Corporate resolved to distribute the money pursuant to s 131 of the Unit Titles Act 2010 (“the Act”):
Distribution of surplus money or property
The Body Corporate may distribute money or personal property in its possession and surplus to its requirements among the unit owners in the same proportions in which the money was raised or the money which was used to pay for the property was raised.
[4] The casus belli1 which led to the current appeal is that the Body Corporate resolved to distribute the money to 21 of the 22 unit owners, excluding Ms Stent.
[5] The Body Corporate’s decision to exclude Ms Stent from the distribution stems from the fact that she bought Unit 204 in the knowledge that the Bridgewater Apartments was a leaky complex. The price she paid reflected that. Because of her knowledge, Ms Stent could not claim against the Council for defects. Ms Stent, along with all the other unit owners, was levied by the Body Corporate to pay for the defects in the Common Property to be remedied. But she was not levied to pay the Body Corporate’s costs in pursuing the Council in respect of the defects in the Common Property. The other unit owners paid those costs. The Body Corporate decided Ms Stent had no entitlement to a share of the money paid by the Council in respect of the Common Property claim because the price she paid for Unit 204 was reduced on account of the defects and because she did not contribute to costs.
[6]Ms Stent sought redress in the Tenancy Tribunal, and failed.2
1 An act or event that provokes war.
2 Stent v BC324525 [2019] NZTT Auckland 9010221 & 9013001.
[7] Ms Stent then appealed to the District Court against the decision of the Tenancy Tribunal. Again, she failed.3
[8]Ms Stent now appeals to this Court against the judgment in the District Court.
[9] Since this is a second appeal Ms Stent is limited to questions of law.4 There are six grounds of appeal set out in the Notice of Appeal. They overlap or are not all discrete grounds. I will address directly the first two:
1.The judgment incorrectly ruled that body corporate funds may be distributed to unit owners under s 131 of the Unit Titles Act 2010 (“the Act”) without regard to the proportions in which monies were previously raised from unit owners.
2.The Judge wrongly interpreted the word “raised” in s 131 as referring to the proximate source of the surplus funds, a factor which is not relevant to any distribution to members by any incorporated body.
The District Court decision
[10] Judge Harrison agreed with the Tenancy Tribunal’s construction of s 131, to the effect that the money received by the Body Corporate on its claim for defects in the Common Property was money “raised” by the Body Corporate suing the Council. Since Ms Stent could not claim against the Council she could not share in the money “raised” by the Body Corporate.
[11] The Judge also accepted the submission made on behalf of the Body Corporate that if Ms Stent shared in the Common Property money then she would be compensated twice for the defects. That is because she bought Unit 204 at a reduced price because of the defects.
Discussion
[12] The Body Corporate owns the Common Property. The unit owners are beneficially entitled to the Common Property as tenants in common in shares proportional to the ownership interest in respect of their respective interests.5 So,
3 Stent v BC324525 [2020] NZDC 12662, a decision of Judge GM Harrison given on 6 July 2020.
4 Residential Tenancies Act 1986, s 119.
5 Unit Titles Act 2010, s 54.
when Ms Stent purchased Unit 204 she became beneficially entitled to the Common Property to this extent. I do not consider that the beneficial entitlement bears on the present case. It does not confer rights on Ms Stent to participate in a s 131 distribution, and Ms Stent does not argue otherwise.
[13] Ms Stent became liable as owner of Unit 204 to pay Body Corporate levies, including levies in respect of the Common Property. As I have noted, Ms Stent, and the other owners, were levied to pay to repair the defects in the Common Property.
[14] The issue becomes whether the Body Corporate was entitled, under s 131, to treat Ms Stent differently because she had no personal claim against the Council and had not contributed to the Body Corporate’s costs.
[15]The Body Corporate submits:
(a)It had a discretion under s 131 to return surplus monies in proportions other than ownership interest, including a proportion of zero, when there is a principled basis for doing so.
(b)Alternatively, as Judge Harrison found, no surplus money was “raised” from Ms Stent.
(c)There was a conduct and distribution agreement between the Body Corporate and a majority of the unit owners and the distribution was made in accordance with the agreement.
[16] Mr Allan, for the Body Corporate, submits that s 131 creates a power only, and not a mandatory obligation, to distribute funds proportional to the shares in which the funds were raised. As a consequence, the Body Corporate was free to distribute the settlement proceeds as it has done. Mr Allan argues that a purposive approach to the construction of s 131 is required to give effect to s 3 of the Act, and in particular s 3(c) which gives as a purpose “to establish a flexible and responsive regime for the governance of unit title developments”.
[17] Mr Allan submits the Act deals principally with the return of money to owners in three contexts: surplus funds (s 131); collapsing the Unit Plan by unanimity (s 177); and collapsing the Unit Plan by court order (s 188). In each case, he submits, there is a “discretionary decision” capable of being made for returning money to owners.
[18] Mr Allan submits that if s 131 was intended by Parliament to impose a mandatory obligation to return surplus funds in the same proportions in which the money was raised then the section would explicitly have said so. Mr Allan gives examples of provisions in overseas statutes which he says make explicit such an intention.
What is the Body Corporate’s power?
[19] Section 131 of the Act was introduced by cl 115 of the Unit Titles Bill 2008 (“the Bill”). At first reading, cl 115 of the Bill provided the Body Corporate could distribute “in proportion to each owner’s ownership interest”.6 However, the Social Services Committee recommended the clause be amended:7
Distribution of surplus money or property
Clause 115 of the bill as introduced provides that the body corporate may distribute surplus money … among the unit owners in proportion to each owner’s ownership interest. We consider that it would be fairer to require that any surplus money … be distributed on the basis on which the money … was raised and recommend amending clause 115 accordingly.
[20] With this recommendation, the Select Committee was adopting the suggested wording articulated in the submission of the Department of Building and Housing.8 The Department had suggested this wording in response to the New Zealand Law Society’s submission that “ownership interest” be substituted with “utility interest” or “contribution interest”.9
6 Unit Titles Bill 2008 (212-1), cl 115.
7 Unit Titles Bill 2008 (212-2) (select committee report) at 25.
8 Department of Building and Housing “Submission to the Social Services Committee on the Unit Titles Bill 2008” at 93.
9 New Zealand Law Society “Submission to the Social Services Committee on the Unit Titles Bill 2008” (20 May 2009) at 27.
[21] Mr Allan submits that the provenance of cl 115 demonstrates that “a conscious decision was made to amend the draft cl 115 from providing for a discretion to distribute surplus funds in proportion to ownership interest to its current wording.” Accordingly, Mr Allan argues, the current wording means the Body Corporate is not confined to unit owners’ ownership interests in determining the proportions of money for distribution and may distribute in line with a unit owners’ broader investment in a particular project.
[22] I disagree. In my view, the wording “distribute … in the same proportions in which … was raised” must mean ‘distribute surplus money in the same proportions as the unit owners’ ownership interest or utility interest’ for two reasons. First, because this is consistent with the provenance of the section. Second, because it promotes coherence in the legal framework created by the Act; the only way in which a body corporate can ‘raise’ money from unit owners is by imposing levies on unit owners under s 121 and, per s 121(2), it must calculate the levies according to ownership interests or utility interests.
[23] Further, the Select Committee’s recommendation and the subsequent amendment to the clause indicates that Parliament never intended the Body Corporate’s discretion to pertain to the apportioning aspect of the distribution. The amendment to the wording of the clause illustrates that Parliament was careful to define how surplus money must be apportioned. And so, I consider the Body Corporate’s discretion pertains only to the decision of whether or not to exercise the power to distribute surplus money.
[24] Accordingly, I accept that s 131 does not compel the Body Corporate to distribute money in its possession which is surplus to its requirements. But, if it chooses to do so, then it is equally clear it must distribute the money “among the unit owners in the same proportions in which the money was raised”. So, the Body Corporate may not pay surplus money to unit owners beyond the unit owner’s proportional entitlement, or beneath the unit owner’s proportional entitlement.
[25] If Mr Allan’s argument were correct, the words “in the same proportions in which the money was raised” would be otiose.
To what does the power relate?
[26] I find also that s 131 applies only to surplus monies raised from the unit owners. That is the plain meaning of “among the unit owners in the same proportions in which the money was raised”.
[27] In this case, the money raised from the unit owners was the money levied by the Body Corporate to repair the defects in the Common Property. The Common Property is owned by the Body Corporate and not by the unit owners. Accordingly, it was the Body Corporate which sued the Council. It did so for the purpose of obtaining money for the defects in its Common Property, which had been remedied at the cost of the unit owners – including Ms Stent – through levies.
[28] Therefore, the money obtained by the Body Corporate through the settlement of its claim against the Council for the cost of remedying the defects in the Common Property could be returned by the Body Corporate to the unit owners from whom it was raised pursuant to s 131 if the Body Corporate decided the money was surplus to its requirements. But it could only do so in the same proportions in which the money was raised. Some of the money was raised from Ms Stent. Accordingly, Ms Stent had to be treated the same as the other unit owners and was entitled to her proportional share of the surplus monies.
[29] Whether or not Ms Stent “profits” from the distribution in the sense that she bought Unit 204 at a reduced price because of the defects is irrelevant. That has nothing to do with the Body Corporate. The Body Corporate’s interest was to recover damages for defects in its Common Property, having levied unit owners (including Ms Stent) to remedy the defects. No unit owner had standing to sue in respect of those defects.
[30] Likewise, whether or not Ms Stent contributed to the costs of the litigation is irrelevant in this context. It would be open to the Body Corporate to treat the costs paid by the other owners in respect of the claim for defects to the Common Property as further money raised. Surplus money could be distributed proportionally and this
would exclude Ms Stent.10 But, Ms Stent’s claim concerns surplus money and not the funds raised to cover litigation costs. Ms Stent is entitled to her proportionate share of the surplus money which the Body Corporate has decided to distribute.
[31] The existence of a conduct and distribution agreement between the Body Corporate and a majority of the unit owners is also irrelevant in this context. It cannot affect rights conferred on Ms Stent by s 131.
Decision
[32] The appeal is allowed. Running the first two grounds of appeal together, I find that Judge Harrison erred in interpreting the word “raised” in s 131 as referring to the obtaining of the money by settlement by the Body Corporate as opposed to the money raised by the Body Corporate from the unit owners by levy. Accordingly, the Judge was incorrect to hold that the Body Corporate was entitled under s 131 to distribute the surplus money to all of the unit owners other than Ms Stent.
[33]I rule that Ms Stent is entitled to her proportional share.
[34] If there is dispute as to the quantum of the proportional share, then I direct that the dispute be referred to, and determined by, the Tenancy Tribunal.
[35] Ms Stent is entitled to costs. If they cannot be agreed between the parties, I will receive Ms Stent’s memorandum no later than 18 December 2020 and the Body Corporate’s memorandum no later than 2 February 2021.
Brewer J
10 It is unclear to me from the materials whether this has been done. However, cl 3 of the Conduct and Distribution Agreement referred to by Mr Allan indicates that unit owners who contributed to the Body Corporate’s litigation costs in relation to the Common Property were repaid before the surplus monies were declared to be surplus.
0
1